What is Interchange?


See the benefits of “interchange plus” pricing versus three tier billing

What the heck is it?

Definition: interchange is the set of rules and corresponding fees that a merchant’s processor (also called the “acquirer”) pays to a customer’s credit card company (also called the “issuer”) when merchants accept Visa and MasterCard transactions.

The fact is, although interchange is COLLECTED by the Merchant Account provider from the merchant, it is PAID to the customer’s credit card company (yes, the same credit card companies making those % on your credit cards).

Summary of Interchange:
Interchange fees are set by the credit card associations of Visa and MasterCard, and are by far the largest component of the fees that merchants pay, representing 70% to 90% of the total.

Interchange fees have a complex pricing structure; they are based on the type of card accepted (ie credit, debit, rewards, corporate, international), the products sold, and whether a transaction is eCommerce, Retail, or Mail Order. Interchange typically includes a flat transaction fee (dues) plus a percentage (%) of the total purchase price.

Visa INTERCHANGE: http://usa.visa.com/merchants/operations/interchange_rates.html

MasterCard INTERCHANGE: http://www.mastercard.com/us/company/en/whatwedo/interchange.html

There are several hundred interchange categories…

That is why most processors “simplify” the complexity of Interchange by “bundling” merchants’ Visa/MC rates into the ARTIFICIAL CATEGORIES of Qualified / Mid Qualified / Non Qualified, otherwise known as “three tier billing”.

HOWEVER this allows processors to successfully hide their excessive profits by forcing inexpensive cards like Debit cards into the Qualified category, and Rewards & Corporate cards into Mid Qualified and Non Qualified categories.

The fact is that most merchants accept approximately 12 different interchange categories of Visas and MasterCards under normal business conditions, so why not show merchants the costs?

Additional Industry Definitions

Acquirer: A VISA/MC affiliated bank or bank/processor alliance that is in the business of processing credit card transactions. An acquiring financial institution (or “acquirer”) contracts with the sponsoring bank and merchants through merchant account providers such as ISO/MSPs to enable credit card transactions. The acquirer deposits the daily credit card totals and debits the end-of-month processing fees from the merchants’ accounts.

Discount Rates: Quoted as part of three tier billing of (1) qualified (U.S. consumer credit and debit cards) and (2) mid qualified (rewards cards) and (3) non-qualified (foreign, corporate, purchasing cards) transactions, where the interchange fees are hidden by the Merchant Account provider.

Dues and Assessments: Processing fees merchants pay to the card associations to finance their roles in operating the network, setting rules, setting pricing, research and development, and marketing and branding. They are both a set percentage of the sale and a fixed dollar amount and are generally collected on a daily or monthly basis.

Dues:The base “$ Rate” the Issuing Banks charge the Processor in order to process a Credit or Debit Card. Generally the rates are $0.10 to $0.16 per transaction.

Assessments:An additional very small “% Rate” that VISA and MasterCard charge the Processor in order to process a Credit or Debit Card. The rates are as follows: VISA 0.11%, MasterCard 0.11% and Discover 0.10%

Interchange: The standardized electronic exchange of financial and non-financial data associated with sale and credit data between merchant acquirers and card issuers on various types of MasterCard and VISA transactions.

Interchange:The base “% Rate” the Issuing Banks charge the Processor in order to process a Credit or Debit Card.

Interchange Fee: A fee paid by an acquirer to an issuing bank for transactions entered into interchange. The interchange fee is a percentage applied, according to VISA/MasterCard regulations, to the dollar value of each transaction. There are multiple categories of interchange, and VISA and Master- Card each have their own criteria for their own categories. A transaction must meet the specified criteria for a category in order for that category’s rate to be applied. Each transaction is evaluated separately; so various interchange rates may apply within one batch of merchant transactions.

“Interchange Plus” Pricing: VISA/MC rates where the interchange, dues and assessments (cost) are combined with an agreed to markup (the “plus”) to allow merchants to pay transparent fees for their transaction processing. Also known as “cost plus” pricing.

Issuing Bank: The financial institution that issues VISA and MasterCard credit and debit cards, and extends credit to a cardholder. ISO/MSP: Independent sales organization / merchant service provider. The registration given by VISA to a merchant account provider is ISO, and from MasterCard is MSP. When a company is fully compliant with registration they are considered a “registered ISO/MSP” of a sponsoring bank. The ISO/MSP provides sales and service support to merchants, and also accepts risk.

Merchant Account Provider: An organization (bank/processor/ISO/MSP) fully compliant and registered by VISA and MasterCard to offer credit and debit-card processing services. See ISO/MSP.

Processor: The company that actually routes an authorization request from a point-of-sale device (such as a payment gateway or credit card terminal) to VISA or MasterCard, and then arranges for fund settlement to the merchant. Processors need to have a sponsoring bank in order to gain access to the VISA and MasterCard networks. When a processor or other entity has made such an arrangement with a sponsoring bank to resell their services, they are called an agent of that bank.

Sponsoring Bank: A chartered bank that has obtained membership in VISA or MasterCard in order to allow a processor access to the VISA and MasterCard networks in order to process transactions.


Contact Us
For more information about “interchange plus” pricing, please contact us.

888-573-PLUS (7587)


Physical Address:
InterchangePlus Solutions, LLC
380 W. Ironwood Dr, Salt Lake City, UT 84115